We have knitted together the impact on the investment companies from what is now widely considered to be the most severe pandemic in a century. The collapse in asset prices over the latter part of March, brought the curtain down on an up-market that lasted more than ten years. In amongst this, there were pockets, such as the technology sector, that held up well. For many industries, the worst is still to come, as we brace ourselves for the sharpest contraction to global growth since the US great depression.
Companies: ASL SDV ASIT BGEU BRLA CCPE DPA IEM JMF JZCP JUKG EPIC PSHD CSH RIII CCPG BLP TMPL BPCR SEQI AIF SMT CIFU SQNX FAIR ICON RSE CRS GWI USF DIGS
CVC Credit Partners European Opportunities (CCPEOL) achieved an NAV return of 3.1% in sterling and 1.6% in euro terms in FY19. The investment vehicle through which CCPEOL invests achieved a gross return of 2.9% (in euro terms), behind its target of 8–10% per year. This was largely due to several restructuring processes within the credit opportunities pool taking longer than expected. However, these have shown good progress recently and, together with prospective new credit investment opportunities, now offer further upside potential for 2020. Meanwhile, the performing credit holdings delivered solid returns as the investment manager was able to profit from the recent ‘flight to quality’ in credit markets.
Companies: CVC Credit Partners Europn Opprtnity
CVC Credit Partners European Opportunities (CCPEOL) aims to achieve a blend of capital growth and income (it targets gross total returns pre fees of 8–12% pa, with c 5pp from income). It maintains two pools of assets – performing credit with assets acquired close to par and credit opportunities consisting of discounted assets. CCPEOL’s one-year NAV total return (to 10 January) was a modest 3.4% for the sterling shares and was assisted by positive returns in November and December. Throughout most of the year, performance was driven by the performing credit bucket. In turn, credit opportunity returns were muted as the company was working on a number of restructuring processes that we understand started to bear fruit at the end of 2019.
CVC Credit Partners European Opportunities (CCPEOL) aims to achieve a blend of capital growth and income (it targets gross total returns of 8–12% pa, with c 5pp from income). The portfolio is positioned defensively, mainly in senior secured debt of large issuers (average EBITDA above €500m) from Western Europe. Long-term NAV net total return (TR) performance remains broadly intact at 6.4% pa over three years (vs SP ELLI at 3.5% pa), despite weaker performance during the Q418 downturn. Currently both share classes offer a dividend yield in excess of 5%, largely covered by coupon income according to our estimates.
CCPG – CVC Credit Partners European Opportunities – Results of fundraising
CVC Credit Partners European Opportunities (CCPEOL) aims to achieve a blend of capital growth and income (target total returns of 8–12% pa, with c 5pp from income) by investing in high-yielding debt instruments such as senior secured loans and sub-investment grade bonds. The portfolio is biased towards large, liquid issuers (€600m weighted average EBITDA) in Western Europe, although up to 40% may be allocated to non-European markets. The underlying investment vehicle holds a blend of investments in performing credit, where returns come mainly from income, with a credit opportunities portfolio made up of discounted assets that offer higher yields and the potential for capital growth. CCPEOL’s performance since launch in 2013 has been solid, although the broad-based sell-off in late 2018 has affected returns more recently. The fund has sterling (CCPG) and euro (CCPE) share classes, which have tended to trade close to NAV, and currently yields just over 5%.
Blackstone / GSO Loan Financing – Half-year report | CVC Credit Partners European Opportunities – Half-year report | Woodford Patient Capital– Half-year report and portfolio update | Real Estate Credit Investments – Proposed placing
Companies: BGLF CCPG SUPP RECI
CVC Credit Partners European Opportunities (CCPEOL) seeks to achieve gross returns of 8-12% a year by investing in a portfolio of high-yielding debt investments with a bias towards Western Europe. The majority of the portfolio is in floating rate, senior secured loans, which, while rated below investment grade, rank higher in the capital structure than equities or bonds. The strategy blends performing credit, where returns come mainly from income, with more opportunistic investment in credits that are priced below par, offering a yield pick-up as well as capital growth potential. In spite of sustained strong issuance and refinancing, which puts downward pressure on yields, the managers see opportunities from accelerating disposals of non-core assets by banks, industry dislocations in areas such as retail, and expected periods of volatility around interest rate rises.
CVC Credit Partners European Opportunities (CCPEOL) seeks returns of 8-12% a year by investing mainly in high yielding sub-investment grade loans. A focus on senior secured assets mitigates the higher risk from lower credit quality. The bias to floating rate credits means rising interest rates should be a benefit rather than a drag. The portfolio is split roughly 50/50 between performing credit, where returns come mainly in the form of income, and credit opportunities, where assets are priced below par and thus offer potential for capital appreciation and downside protection due to the discounted price. There are relatively few alternative ways for individual investors in Europe to access the senior loans market, since loans are not permitted investments in open-ended UCITS funds. Sterling and euro share classes are available, and a recent placing of treasury shares has increased the market cap of each class by £77.55m and €13.87m, respectively.
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Since the restrictions were lifted in mid-May, Belvoir has seen a surge in activity due to pent-up demand, resulting in June being a record breaking month for the group’s Newton Fallowell estate agency network in terms of instructions and sales and the financial Services division in terms of written income. Management have stated that with the positive impact of the stamp duty reductions still to take effect they are confident that the Group is well positioned to capitalise on the current market upturn and to take advantage of the opportunities arising from more challenging conditions. We have upgraded our PBT forecasts for FY 2020 to the level we forecast pre-COVID. We have also upgraded our target price from 169p to 233p and highlight that H1 2020 has demonstrated the resilience of the group, management’s ability to navigate difficult market conditions and the power of the franchise-led strategy.
Companies: Belvoir Group Plc
What’s new: Purplebricks Group results for the year to 30 April 2020, show the Australian and US units as discontinued; but include the Canadian unit sold for C$60.5m (i.e. £35m) in July. Investors will focus on the UK unit which revealed:
11% fall in UK revenue to £80.5m (FY19: £90.1m), as the number of instructions fell 23% (impacted by early Covid uncertainty and lockdown), but the average revenue per instruction “ARPI” rose 12% to £1,394;
UK gross profit margin improved to 64.1% (FY19: 63.0%);
UK marketing costs to revenue improved to 25.6% (FY19: 29.6%);
Spend on Digital capacity pushed UK operating costs 32% to £26.2m (FY19: £19.9m), as new management team pursued initiatives which are being “delivered at pace with significant opportunity for further innovation.”
UK adjusted EBITDA fell 53% to £4.8m (FY19: £10.2m).
Companies: Purplebricks Group Plc
As expected, the quarter saw a sharp increase in loan impairments. However, one can wonder if the increase was not capped by the group’s willingness to keep its results afloat. Management’s downbeat guidance in terms of revenue recovery potential and cost reduction does not bode well as regards the group’s future credit loss absorption capacity.
Companies: Lloyds Banking Group
For this Monthly, we are delighted that Rooney Nimmo and 24Haymarket have allowed us to reproduce a recent report they jointly published, entitled An analysis of UK exits (2015-2019), which provides a granular analysis by sector of the activity in our dynamic private companies world. We hope you find the insights of interest.
Companies: AVO AGY ARBB ARIX CLIG ICGT NSF PCA PIN PXC PHP RECI SCE TRX SHED VTA
The group continued to opportunistically take advantage of its CIB division’s performance to front-load pending credit losses. The third quarter should mark the beginning of a normalisation in the revenue mix and the cost of risk assuming no change in the macro-economic scenario retained by the group.
S4 Capital has announced the merger of Orca Pacific with Mighty Hive. Orca Pacific is a full-service Amazon agency and boutique consultancy based out of Seattle, which builds on the existing Amazon relationship of the group. The combination with Mighty Hive creates an end to end eCommerce offering encompassing retail management, advertising and content on the Amazon platform. Orca has a blue chip client list including Reebok, Uni-Ball, Mars, OshKosh BGosh, Godiva, Del Monte and Kenroy Home. We view Orca Pacific as an ideal merger partner with MightyHive, while we also see potential to align with the creative capabilities of MediaMonks. No financial details were disclosed, though we believe the transaction would have been structured consistent with the 50/50 cash/equity structure used by S4 Capital. The group recently raised £116m to fund the cash element of its M&A strategy. S4 Capital will release interims on 9th September followed by a Capital Markets Day. We await the outcome of two pitches for Whopper accounts before updating our forecasts. We retain our Buy rating and 375p price target.
Companies: S4 Capital
European Metals Holdings today announce that a support and financing agreement with EIT InnoEnergy, the principal facilitator and organiser of the European Battery Alliance has been agreed. This agreement is to help progress at the large Cinovec Lithium project in the Czech Republic, a JV for which has just been set up between European Metals Holdings and the large Czech utilities Group CEZ to fully fund the project through Feasibility and to a construction decision.
Goldplat today provides an update on its Q4 2020 and the end of its financial year (FY2020). Despite the best efforts of COVID Goldplat has had an excellent year. Overall business units in Ghana and South Africa have seen an increase in profit levels, and losses have been stemmed from the Kilimapesa mine in Kenya which is now on care-and-maintenance. Cash at the end of June was £3.2m.
Digitalbox is an AIM-quoted digital publishing company, currently owning two distinct digital media assets and with a scalable platform to grow through acquisition. This morning the group has provided a trading update for the six month period to 30 June 2020. H1 2020E revenue is reported to be flat against the prior period on a comparative basis at c.£1.0m, reflecting increased audience volumes being offset by the well-publicised fall off in digital advertising pricing. However, despite this present backdrop, H1 2020E adj. PBT is anticipated ahead of management's expectations due to a strong margin performance in the period; this driven by changes made to improve operational efficiencies. Encouragingly, as at 30 June, the cash balance has increased by £0.6m to £1.2m.
With this morning's announcement, NBB has confirmed that the thorough overhaul of the company in recent years has continued to bear fruit notwithstanding the pandemic. Notably, the news that the company has been EBITDA positive in H1 is a tribute to the proactive actions taken by the management in (1) building new businesses which now make up more than half of the group, and which continue to progress, (2) taking out significant costs, and (3) developing tailored solutions for clients which incorporate all of the separate business strands as required. We view the achievement in a particularly positive light since the market for Executive Search has been challenging as a result of the global Covid situation.
Companies: GDP NBB DBOX
The Bankers Investment Trust (BNKR) has continued to deliver on its twin objectives of long-term capital and income growth, rebounding strongly from the global market declines of Q120 and declaring increased dividends for H120 despite the difficult backdrop for corporate earnings. Coming into 2020, manager Alex Crooke had positioned the trust relatively cautiously with a net cash position of c 3%, which he put to work during the sell-off, boosting the portfolio’s long-term total return potential. At the half year the board reiterated its intention to increase BNKR’s FY20 total dividend by c 3%, using reserves as necessary, which would secure a record-equalling 54th consecutive year of dividend growth for the trust’s shareholders.
Companies: Bankers Investment Trust
Today's update highlights that despite the Covid-19 outbreak and UK/IRE lockdown, which has affected trading, Duke has continued to collect cash royalties from most of its royalty partners. Short-term alternative payment terms have been agreed with those partners hardest hit, to support them to periods where royalties can be fully recouped. Therefore the 61% fall in p/b from 1.3 (at 20 Feb) to 0.5 today, appears overdone.
Companies: Duke Royalty
Primary Health Properties (LON:PHP) recently announced interim results for the period to June 30, 2020. The company reported net rental income of £64.8mln, up 20.4% versus H1 2019. Net profit was up 29.0% at £36.0mln (European Public Real-estate Association earnings measure). Dividend per share for
Companies: Primary Health Properties
Worldwide Healthcare Trust (WWH) is celebrating its 25th anniversary. Managed by Sven Borho and Trevor Polischuk at OrbiMed, the trust has an enviable absolute and relative performance track record. The managers remain very constructive on the prospects for the global healthcare sector, suggesting that while President Trump has once again focused on the issue of US drug pricing, his ‘bark is worse than his bite’, and his efforts are a negotiating ploy to get the healthcare industry to the table to discuss reforms. They highlight minimal disruptions at the US Food and Drug Administration (FDA) as a result of the coronavirus, and expect an uptick in industry mergers and acquisitions (M&A) in H220 and beyond.
Companies: Worldwide Healthcare Trust
The group’s earnings surprise was driven by goodwill impairments. On the negative side, management upgraded, albeit slightly, its full-year loan impairments guidance and warns about revenue and CET1 pressure. It also reckoned that the tensions between the US and China will impact the group.
Companies: HSBC Holdings Plc
The Brunner Investment Trust (BUT) is now managed by Matthew Tillett at Allianz Global Investors (AllianzGI), who worked closely with his predecessor Lucy Macdonald as co-manager on the fund for four years, with a particular focus on income generation. He is able to draw on the well-resourced investment team at AllianzGI, including BUT’s new deputy managers Jeremy Kent and Marcus Morris-Eyton. Tillett says BUT offers a balance between growth and income, having provided investors with consistent capital appreciation over the long term, pays an attractive yield and has a distinguished record of 48 years of consecutive annual dividend increases. He believes we are in an exciting part of the cycle, where there are extremely interesting investment opportunities for those with a disciplined approach.
Companies: Brunner Investment Trust
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
PetroTal (PTAL LN/TAL CN)C; Target price £0.45: 1Q20 results/Bretaña expected to restart in July – 1Q20 financials are in line with expectations and 1Q20 production had been reported previously. At the end of 1Q20, current trade and other payables had been reduced to ~US$45 mm compared to ~US$55 mm at YE19. Most importantly. PetroTal continues to expect the Bretaña field to be re-opened this month. The contingent liability with Petroperu is estimated at US$25 mm at the current oil price and the company has entered into a financial swap for 0.46 mmbbl of oil with an ICE Brent reference price of US $40.58/bbl to cover the upcoming sale by Petroperu at the Bayovar port. This is a recovery story that we continue to like. It offers a combination of value, production and cash flow growth and reserves upside. We anticipate that the imminent reopening of the field with be an important catalyst to the share price.
i3 Energy (I3E LN): Reveals takeover target in Canada | Maha Energy (MAHA-A SS): Production update | Aker BB (AKERBP NO): 2Q20 update in Norway | Energy (RRE LN): Recommended offer by Viaro Energy | Spirit Energy: Dry hole in Norway | Enwell Energy (ENW LN): Ukraine update | JKX Oil & Gas (JKX LN): 2Q20 update in Ukraine and Russia | Pharos Energy (PHAR LN): Operating update in Egypt and Vietnam | Sound Energy (SOU LN)C: Terms of Moroccan licence renegotiated | Tethys Oil (TETY SS): June production in Oman | Victoria Oil & Gas (VOG LN): Gas sales contract with ENEO in Cameroon terminated
EVENTS TO WATCH NEXT WEEK
14/07/2020: Aker BP (AKERBP NO) – 2Q20 results
15/07/2020: Premier Oil (PMO LN) – 1H20 update
13-17/07/2020: GeoPark (GPRK US) – 2Q20 update
Companies: I3E MAHAA JKX PHAR EQNR AKERBP ENI HUR PTAL REP RRE SOU TPL VOG OMV